The December BoE MPC meeting again opted to leave Bank Rate at 5.25 percent, matching a strong market consensus. The benchmark rate has been at that level since it was last hiked by 25 basis points in August. However, in line with recent decisions, the vote was not unanimous with Jonathan Haskell, Catherine Mann and Megan Greene all repeating their November call for another 25 basis point tightening.

In terms of QT, the MPC also re-affirmed its aim to reduce the stock of gilts held in the Asset Purchase Facility by £100 billion to £658 billion over the 12 months that began in October. In mid-December, the overall stock stood at £744 billion, comprising just under £744 billion of gilts and £0.4 billion of sterling non-financial investment-grade corporate bonds.

Since the November meeting, the real economy was thought to have performed much as the bank had expected with zero growth confirmed in the third quarter and a similar outcome expected in the current period, despite a 0.3 percent monthly contraction in October. Meantime, the bank treated the sharp fall in inflation from 6.7 percent in September to 4.6 percent in October with caution. In particular, it warned that much of the decline reflected movements in components that may not provide a good signal of underlying trends in service sector prices and of persistence in headline inflation.

Looking ahead, inflation was expected to remain near to its current level around the turn of the year with the rate in services projected to increase temporarily in January due to base effects from unusually weak price movements at the start of 2023. Even so, the near-term path for overall inflation is now seen somewhat lower than projected in November.

In sum, another split MPC vote this month means that the risks to stable official interest rates remain on the upside. Certainly, for now there seems to be little appetite for any early reduction and the minutes note that key indicators of inflation persistence remain elevated. Even so, with the headline and core rates falling, the economy on the verge of recession and perhaps most of the impact of earlier rate hikes still to feed through, the next move in Bank Rate is much more likely to be down than up. Just how quickly the rate cuts are delivered will be heavily influenced by wages so the earnings component of the monthly labour market report should continue to be a key market focus. To this end, the bank noted upside risk, including from the possible effects of the recently announced increase in the National Living Wage.

Back-to-back decisions in November and September to leave policy on hold followed 14 successive increases at prior meetings and has bolstered the view that the BoE's tightening cycle has run its course. Expectations for December's meeting are no change in Bank Rate.

The Monetary Policy Committee (MPC) of the Bank of England (BoE) comprises nine experts, five of which are senior central bank executives and the other four are external members appointed by the Chancellor of the Exchequer. The MPC previously announced its monetary policy with regard to interest rates and any unconventional policy instruments every month but this was changed when the meeting schedule was truncated to eight a year in 2016. With a view to enhancing policy transparency, as of August 2015 the minutes of the MPC's deliberations, which indicate how each member voted, have been released alongside the policy announcement. Forward guidance was introduced in August 2013 but since then its framework has become increasingly qualitative and now provides only limited information about where policy might be headed.

The Bank of England determines interest rate policy at their Monetary Policy Committee meetings. These meetings currently occur during the first week of each month and are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of a change in the benchmark Bank Rate or unconventional monetary instruments. The MPC may or may not issue a post-meeting statement explaining its decisions in addition to the discussion’s minutes which, since August 2015, have been released alongside the policy announcement. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. In the middle month of each quarter, the Bank publishes its Inflation Report, which provides a detailed analysis of economic conditions and the prospects for economic growth and inflation agreed by the MPC. This is now made available at the same time as the policy announcement and release of the minutes.

The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.

As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.

The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.